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Bob’s Take

There is No “Permanent” Fix for Social Security

This article was published by The McAlvany Intelligence Advisor on Monday, December 12, 2016:

Social Security Poster:

There’s no doubt that Texas Representative Sam Johnson means well. He and his constituents are concerned about their financial futures and about the viability of Social Security as an important part of those futures. So on Thursday he offered his plan “to permanently save Social Security.” He calls it the “Social Security Reform Act.”

The plan doesn’t deserve a close look. It’s essentially a rearrangement of the deck chairs on the Titanic: benefit reductions, retirement age increases, “means” testing and eliminating the COLA.

Liberals went into hyperdrive, claiming that this plan from a single congressman from the Lone Star State represents the collective (sorry) thinking of the Republican Party. After all, didn’t four of the Republican Party candidates running for office last summer support the radical (gasp!) idea of getting rid of it altogether? Those miscreants – Rand Paul, Mike Huckabee, Rick Perry, and Ted Cruz – want to do away with the welfare state’s most successful transfer program ever devised! What are they thinking?

Michael Linden, a director at the liberal Center for American Progress, decried the massive cuts proposed by Johnson: between 11 and 35 percent. Worse still, those cuts would apply immediately to those already receiving checks! Oh no!

Social Security trustees scoped out Johnson’s plan and concluded that Linden is right: there would be real cuts in benefits for nearly every recipient, only slightly different in amounts and timing.

Johnson is on a fool’s errand. Social Security cannot be fixed. There is no “permanent” solution, for at least four reasons: moral, constitutional, economic, and demographic.

Starting with demographics, there just aren’t enough new people entering the program to bail it out. Thanks to declining birth rates and a lackluster economy, millions of workers the system was counting on aren’t there. In the beginning there were 156 workers supporting each recipient of benefits. Today it’s barely more than 2 to 1.

The economics: the system was never viable even at the very beginning. The program was sold as an “insurance” policy against deprivation in old age, a pooling of “contributions” to help people who couldn’t help themselves. The original act was called FICA – Federal Insurance Contributions Act – stealing credibility from the insurance industry (most of which did survive the ravages of the Great Depression), and lying about those “contributions.” They would be collected by men with badges. In other words the program was going to be just swell – so wonderful that people had to be forced to participate in it!

The Supreme Court’s ruling in Helvering v. Davis in 1937 that the devil’s plan was constitutional had to ignore the Tenth Amendment and expand the General Welfare clause. Declaring it to be constitutional didn’t make it so.

Finally, the immorality of Social Security was explained a hundred years before it became law by French economist Frederic Bastiat. It’s nothing more than theft on a grand scale, only he called it legal plunder:

But how is this legal plunder to be identified? Quite simply. See if the law takes from some persons what belongs to them and gives it to other persons to whom it does not belong. See if the law benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime.

The immorality of the program has resulted in millions becoming dependent on the government. Here are the stats as of 2014: 22 percent of married retirees rely on Social Security for 90 percent, or more, of their income. For unmarried, it’s even worse: 47 percent rely on the program for 90 percent of their income.

There are other flaws as well. The benefits aren’t guaranteed and can be changed at will by the Congress (see Johnson’s bill above). They can’t be enforced against the government in a court of law. And the benefit stream ends at death – there is no lump sum benefit (other than $255) paid to his heirs.

The money that is collected – approaching $1 trillion a year, or a quarter of the government’s annual budget – isn’t enough to cover the benefit payouts. They haven’t been since 2010 when the plan went cash flow negative. By 2020 the “surplus” (made up of government bonds) will have been liquidated, and by 2033 everyone is going to get a “benefit reduction” of at least 25 percent.

As those government bonds are liquidated, they must be, by law, redeemed only by the Treasury. Where does the Treasury get the money to buy them? From other taxpayers! In other words the system is arranged to tax an individual once, and then again indirectly to keep the system afloat.

View Chile’s experiment with privatization. The impact of those now-privately-owned retirement accounts amounts to nearly 40 percent of the country’s gross economic output.

In the dream world of privatizing Social Security, 65,000 employees running the back office would have to find other work. And the government would save $12 billion a year in administration.

Most plans offered to privatize the scheme include the use of government force: an individual “must” contribute, he “may” be allowed various (limited) choices determined by the government to be “better,” “safer,” “easier” on where to put his money. Any program that requires the use of force is, at its most fundamental level, morally flawed.

In a perfect world (which this most certainly isn’t) people would be free to spend or invest their own funds in any way they see fit. That’s a remarkable concept, which unfortunately remains outside any of the current discussions over how to fix the fatally flawed program.

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